Legal Question in Real Estate Law in California

No. You should, however, consult with a knowledgeable real estate attorney about defaulting. The game is different for investment real estate than for your personal residence, and there are landmines you might step on if you don't go about it the right way.

No.

Firstly, you need to understand the time lines for these processes. If you are already in the process of evicting the tenant, the eviction should be over and done with before your lender even notices that you have stopped making payments, and at that point, probably another month or two will elapse before you get a Notice of Default. From that point to a foreclosure sale, if the short sale concept doesn't work, figure around another 110-120 days, maybe much longer. Your tenant will be ancient history by then.

Next, defaulting borrowers' experiences with short sales are a very mixed bag. I'm sure quite a few work out well, and the borrower-sellers escape without an actual foreclosure on their records. However, other borrowers run into a variety of difficulties, ranging from lack of buyer interest to failure of the bank to approve a sale to one department of the bank foreclosing while another department is processing a proposed short sale. So, don't assume anything during the short-selling process, and do get a good listing broker with prior experience working with your particular lender, so they know the ropes, whom to call, etc.

Finally, you should probably involve a local lawyer to advise you on your relative risk of liability to the lender for any shortfall after the short sale or foreclosure. This is especially important if you have a non-purchase-money second on an income property, but moderately important if only for reassurance in all other situations. Refi loans and seconds always present certain risks of an attempt by the lender to get a deficiency judgment or get paid off otherwise. Also, a lawyer can assist you in getting you completely off the hook if you do make a successful short sale. Short sale terms are not always consistent and the lender may try to preserve a right to collect a balance from you.

Here's a warning about short sales.

Be sure that, when the lender agrees to the short sale, the paperwork indicates that you (the borrower) will be excused from the deficiency - the amount of the debt that was not recovered by the sale.

I have clients who signed papers from the bank, indicating that the bank will allow the short sale (and release its lien), but the borrow will owe the amount of the mortgage that is not paid by the sale.

It's worth a few bucks to have the paperwork reviewed by an attorney.